Even by its own turbulent standards, Georgia looks to be entering a prolonged period of political instability following watershed parliamentary elections won by the opposition Georgian Dream coalition – the first time since independence in 1991 that power has been transferred through an election rather than a revolution.

Despite President Mikheil Saakashvili's unexpectedly gracious admission today that his ruling United National Movement had been defeated fair and square, his victorious opponents may face serious problems working with a man they have spent months vilifying and decrying as a dictator. Saakashvili is not due to stand down until October next year, and is unlikely to accept lame duck status without a fight.

Who rules Georgia, a pint-sized Caucasus nation of 4.5 million people, matters disproportionately to both Russia, its former colonial master that involuntarily relinquished control in 1991, and the US and Europe. Georgia has a strategic importance that belies its size – a crossroads at Asia's gate with signposts pointing to Iran, Turkey, Russia and west and north across the Black Sea.

For energy-poor western Europe, Georgia is a vital conduit for Caspian basin oil and gas exports that are not, for now at least, under Moscow's manipulative control. Vladimir Putin's Kremlin views Georgia very much as part of its backyard, a "near abroad" property (though the phrase is not much used these days) that should conform to Russian interests. Europe believes it belongs inside its post-Soviet, liberal pro-market "eastern neighbourhood".

The idea Georgia might one day join Nato – it already contributes through the Partnership for Peace scheme – and the EU is anathema to Russian nationalists. It is not coincidental that since 2008, when Putin sent his tanks deep into Georgian territory in support of independence for the breakaway satraps of South Ossetia and Abkhazia, Russia has effectively controlled about one-fifth of Georgia's total land mass.

The problem for both sides of this strategic equation is that Georgia's leaders – they might better be termed overlords – tend not to do what they are told, even by putative friends. Saakashvili's authoritarian, sometimes confrontational style, pockmarked by serial rights abuses including a recent prison torture scandal, has embarrassed his Brussels backers. The west wants a stable Georgian government, not one engaged in a personalised, potentially dangerous feud with the Putin regime.

Yet the man behind the Georgian Dream opposition, billionaire Bidzina Ivanishvili, could also prove an awkward customer, should he be confirmed as prime minister. Ivanishvili made his money, lots and lots of it, during Russia's corrupt oligarch era. He still reportedly holds a chunk of Gazprom shares. Saakashvili predictably labelled him a Kremlin stooge, a charge he denies.

While Putin will undoubtedly be hugely gratified to see his sworn enemy Saakashvili taken down a peg or two, he cannot be sure the mercurial Ivanishvili, who until recently led the anonymous life of a Citizen Kane-style recluse in his large luxury home overlooking Tbilisi, will do his bidding. Cloning Ukraine's pro-Kremlin president, Viktor Yanukovych, would be too good to be true for the Kremlin's karate king. That Georgians have swapped one Saakashvili for another is a more plausible possibility.

Commentator Thomas de Waal casts the elections as a clash of titans, neither of whom placed a more perfect democracy at the top of their to-do list:

"Greek scholar Ilia Roubanis has called Georgian politics 'pluralistic feudalism', a competition between a patriarchal leader who enjoys uncontested rule over the country and a leader of the opposition bidding to unseat him and acquire the same [...]

"Saakashvili has been personally leading the election campaign for the governing party [...] even though he is not running for parliament himself. His main message is that, like the medieval Georgian king, David the Builder, he has been building a new nation and he and his team deserve to be allowed to finish the job."

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Ivanishvili's parliamentary victory has punctured that vision, potentially fatally. But as James Kirchick of the New Republic pointed out, his leadership credentials remain untested, his policy programme is both grandiose and vague on particulars, and President Saakashvili remains a formidable and powerful rival. With the loosely bound, six-party Georgian Dream coalition subject to potential splits and parliamentary defections, and the country entering wholly new territory, Georgia's political outlook, never calm, looks more stormy than ever.